John Coates (@johncoates) is a “very” small business consultant with FreshBooks. I got to know John recently when he spoke at our ConvergeSE conference earlier in the year. His insight into the invoicing (eg. getting paid) portion of the web design business really made me pay attention. In this interview he shares with us some of those tips and techniques for getting paid on time and more often.

Gene: Hello everybody, I’m here with John Coates from Fresh Books and we had him at ConvergeSE earlier and he was one of the speakers. I wanted to just talk with him about some of the fine points he made about getting paid and invoicing and stuff that he’s learned over time at Fresh Books, so hey John.

John: Hey how’s it going, Gene?

Gene: Good. I want to, one of the main things, the main reason I wanted to call you in the first place is you sort of, you ended up your talk talking about terms on invoices and how that impacted getting paid. So could you enlighten me a little bit more?

John: So, we did discuss that, some of our data, to give you all some background in that it was to see what kind of trigger words there were, or what kind of terms got people paid the most often. And some things may or may not surprise you. Also maybe using certain terms on your invoice is something you never thought about on your invoice. So then that’s where of a lot of the learning needs to come from because you know, if you’re a copy writer working on a website, you’re going to spend hours on a project pouring over a headline or something like that. So maybe you include your terms or you don’t.

But all your clients probably read them and they can’t make sense of them or they can’t understand them so again try to bring them into that space. So that’s kind of the key things, first. So like one of the main things is it’s really about being polite on your invoice. Asking your client or saying, “Thank you for the business, “or “Please pay, “so they can feel confident, based on trust and you can continue to bill them.

So if they like you, that’s important because they want to pay people that they like. They don’t want to pay you if you’re bad and that also comes down to client relationships in getting paid fast, like if they want to pay your bill. Like the same thing happens when it comes to buying anything. Like they’ll buy something from a company that they really like.

Same thing in keeping their relationship. So instead of just having kind of a “net 30”. And the other thing is, be clear and concise on the invoice. So if you’re saying something like net 30 or something like that, people may or may not understand what that means, 30 days may make sense to a lot of people that have been in the game for a while or you know have been doing this but net 30 is not as clear and concise versus “Would you please pay me in 30 days.” It’s very, very specific.

So they can get kind of squared in that. They know exactly where it’s kind of falling and maybe they can schedule it. So they can take some sort of action on that invoice. Like ideally you want them to go write the check or enter the credit card that’s put there on the receipt or the invoice. It does really work.

Gene: Huh, that’s really interesting.

John: It doesn’t really matter if you use 30 days or one month, but we found that people who used 21 days for the date for whatever reason, it got paid faster. Now I don’t know if that’s kind of a sense of urgency thing, receipt thing or it’s a combination of a lot of different things but, and thirty days may just be a little too far off in the distance because if you make it three weeks it sounds very clear period of time that you have to pay that for.

Another thing that’s just kind of backing up on the same topic, feel free to kind of nudge the client, be very polite again to the client and, be like, “hey you know, this invoice was sent just two weeks ago, it’s due in seven days”, or like. “I look forward to your payment” or something like that and so you kind of continue to nudge them but you have to very polite. Show them some courtesy, if you hammer them daily, your next best client is your last best client, but if you want to work with them again keep that in mind as well as make the change in language on your invoices.

Now if you have a horrible relationship throughout the whole thing then you’re probably not going to do business with them and it’s going to be tough to get paid.

Gene: Right. Wow, yeah, it comes down to being very specific and being polite. That’s interesting. We were talking about, you know knowing your worth and some of the top tips that you were giving us for you know getting paid on time and stuff and it sort of came down to being polite and trying to empathize a little bit. Could you cover that a little bit more again, John?

John: Yeah.

Gene: Where you were talking about put yourself in their shoes.

John: Oh, really for me in billing or selling too, you know like we, now we have a dealer company that works with us, so you want to get in that person’s shoes and really understand what they’re going through as well. So it’s like why wouldn’t they pay me promptly, why would they want to delay that meeting, how can we make it easier for them? So if they like monthly fees, structuring them the same every month, not at variale times, maybe break it into smaller chunks, so it’s like reducing a five thousand dollars invoice to $500 and then it won’t be a $5,000 invoice at the end of the project. (It’s a lot easier to spend $500 broken up into chunks than it is to spend $5,000 at one time.)

John: So get into their shoes and you can understand that they want to deal with someone who they like so keep that in mind as well.

Gene: That’s a good point, because it kind of lends to cash flow.

John: Yeah.

Gene: As a freelance designer, you kind of want to get paid everything at one time, right? You want to get done and get a big old check, like you said for five or eight thousand dollars. That’s not necessarily going to help you with cash flow if that project takes four months.

John: Exactly.

Gene: But it sounds like . . . the things you’re talking about staying organized and being on top of these things can help you with your cash flow.

John: And cash flow, too as a freelancer, it’s tough because you have things that come up or personally come up. Both of those are very important as a contractor to keep those things under wraps and you have to save against a rainy day, for if the business dries up after a very strong run. You know, our clients are just flying in the dark, and you have to many.

Gene: [sarcastic] Yes, that’s awesome. That’s awesome when that happens.

Gene: One of the things you’ve talked about earlier was “knowing your worth”, and I’m sorry if we’re rehashing this again, but can you please go over that with me real quickly?

John: One of the things about “knowing your worth” is really understanding what your business model is, where it’s going, what you charge, what you should be charging. There are top designers with 25 years’ experience can charge $250 an hour sometimes, where others might charge $25 an hour or $50 an hour. It’s a large scale and it’s kind of tough. The real thing there is measuring your business and keeping track of everything, so keeping business analytics on the side. You can’t just be designing all the time. It’s really having an understanding of where you’re spending your time, where the expenses are coming out of, what you can rebill to your client.

Just keeping track of it all. A lot of people underestimate how much time their projects take. They think, “Oh, this will take me about two weeks, so I’ll tell the client $2,000.” But it really takes you four weeks and you maybe should have made $4,000 in that case. But you don’t. You agreed on that before you started, and it’s kind of tough to change it later.

Gene: [laughs] Yeah, they don’t like that.

John: No. But tracking that as you go, and as you do more and more clients you get a better sense of it. But if you have those hard facts, if you spend two hours a week just going over it, you know how long things are actually taking, or where the expenses were, and if you have subcontractors how much they cost. Really kind of getting into that profitability by project and those margins. And then really, take a lot further the understanding that maybe you should be charging more. Of course it’s a price point, so you might have to make it easy on the client again. Don’t be afraid to undercharge, that’s the main point. But, understand what it takes to get that project done.

Gene: That’s important. It lends to what you were saying earlier about staying organized. I suppose Fresh Books helps keep you organized.

John: I should tell you a quick story. Mike [McDermott] , our founder and CEO, was a freelancer and used to have papers everywhere and didn’t know where everything was and thought there had to be a better way. The main thing is, it was very difficult for him to get a snapshot, or dashboard for the business. He had no idea who was owing him money, how much money he had out in the field. He might have had $10,000 come through the door at one point, but… Do you even know where that is? Or do you spend two hours poring through very precise emails to figure out where the money is through the invoices and get everyone in?

But can you do that? Or do you have to go to some sort of Excel or other Word file and track all those. There’s a whole bunch of tools to help you get there and get a dashboard. But you need to organize a place where you can go to get a quick snapshot of your business. So the cash flow works better if you set a collection date, as I call it, and bring in all that cash as fast as possible.

Gene: That’s very helpful. God help you if you’re on QuickBooks, huh?

John: Oh well, it’s funny. A lot of people use QuickBooks, but they don’t actually invoice out of QuickBooks. So a lot of people still use an Excel document. And it kind of helps to manage you. And QuickBooks you know I have more of an accounting background, so I understand how it works. If you know double ledger accounting, it might be useful for you, but there are a lot of great tools out there.

It kind of depends on what need. Most freelancers are very revenue driven, so you don’t have heavy expenses. You don’t have assets, so you don’t need to manage those things. So think about that when you’re choosing your accounting tool.

Gene: That’s interesting. We’re pretty simple. Cash in, cash out – right?

John: That’s all it is.

Gene: Well thanks, John. Thanks for your time. I really appreciate you taking time to clear up a bunch of this stuff.